Company Car Fuel Benefit Charge

Who is likely to be affected?

Employees with company cars who receive free fuel from their employers, and who do not reimburse their employers for the private use element of that fuel.

General description of the measure

The measure will increase the multiplier used to calculate the cash equivalent of the benefit of free fuel provided to employees from 18,800 to 20,200 for the tax year 2012-13. There is a further commitment to increase the multiplier by two per cent above the rate of inflation (RPI) for the tax year 2013-14 which will be legislated by Order in the autumn, following confirmation of the September 2012 inflation figure. As a result of this change the fuel benefit charge will increase for fuel provided for all cars apart from zero emissions cars.

Policy objective
This measure supports the Governments environmental agenda and the sustainability of the public finances, following an increase in pump prices. In addition to announcing the Fuel Benefit Charge (FBC) multiplier for 2012-13, the Government is also announcing the 2013-14 rate, whilst committing to announce all future rates a year in advance. This will provide greater certainty to employers and employees.

Background to the measure

Budget 2008 made a commitment to increase the fuel benefit charge at least in line with inflation each year.

Detailed proposal
Operative date
The new rates will apply on and after 6 April 2012.

Current law
Sections 149 to 153 of the Income Tax (Earnings and Pensions) Act 2003 provide for the treatment of fuel provided free by an employer for a company car as a benefit in kind. The cash equivalent of the taxable benefit is calculated by multiplying the set figure (multiplier) by the appropriate percentage which is based on the carbon dioxide emissions of the car concerned. There is no benefit in kind if the employee reimburses the employer for the private use of the free fuel.

Proposed revisions
Legislation will be introduced by Treasury Order to increase the value of the multiplier from 18,800 to 20,200. This represents a two per cent increase above inflation.

Summary of impacts
Exchequer impact (m) 2012-13 2013-14 2014-15 2015-16 2016-17 +5 +10 +10 +5 +5 These figures are set out in Table 2.1 of Budget 2012 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2012. This measure is not expected to have significant economic impacts. This measure would impact an estimated 250,000 individuals and households, 60 per cent of whom are higher or additional rate taxpayers. A basic rate taxpayer driving a typical car, such as a Ford Focus, will be paying approximately 100 more and a higher rate taxpayer around 200 more in 2012-13 compared with what they pay in 2011-12. The change applies equally to all company car drivers who receive free fuel from their employers. It is expected that the measure will have a negligible impact on the administrative burden and compliance costs for businesses and civil society organisations. The timing of the announcement of the 2012-13 rates may create a small additional one-off cost for employers, as they will have to operate revised tax codes at short notice. Announcing 2013-14 rates at the same time, and committing to announce future rate changes one year in advance, ensures that this will not be an issue for future years. Changes in the FBC rate require administrative and software alterations for HM Revenue & Customs. These are estimated to cost 0.4 million. Such costs will not be incurred in 2013-14 as the rate is being pre-announced. Small firms impact test: Implementation of this change is considered routine and the impacts on small firms are negligible in terms of administrative and compliance costs.

Economic impact Impact on individuals and households

Equalities impacts Impact on business including civil society organisations

Operational impact (m) (HMRC or other) Other impacts

Monitoring and evaluation

The measure will be monitored through communication with affected taxpayer groups.

Further advice
If you have any questions about this change, please contact Su McLean-Tooke on 020 7147 2665 (email: susan.mclean-tooke@hmrc.gsi.gov.uk).